BNP Paribas forecasting an L-shaped recovery

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The coronavirus pandemic will have a lasting effect on the economy, keeping it from returning to pre-crisis levels, according to BNP Paribas' chief U.S. economist.

As the months pass, the likelihood of a U-shaped or V-shaped recovery receded, said Daniel Ahn, chief U.S. economist and head of markets 360 North America at BNP Paribas.

“At first we thought we would see a U- or V-shaped recovery, when we thought our economy would return back to its pre-crisis levels and trend of growth,” said Ahn at a BNP press conference Thursday morning. “Now our base case is that we never get back to the trend we were on.”

An L-shaped recovery is the economy's likely path, although the outlook remains murky at best, with lots of things that could go wrong, which would make the bad situation worse, he added.

“The chances of a second wave of COVID-19 are high and the chances are increasing with all of the mass gathering protests,” he said. “Other stressors include tensions between the U.S. and China, the election and if/when more support is needed for state and local governments as they could be forced into another round of layoffs and many state and local employees are first responders and provide essential services.”

Jobless claims
Initial jobless claims fell to a seasonally adjusted 1.877 million in the week ended May 30, from the previous week’s upwardly revised level of 2.126 million, originally reported as 2.123 million, the Labor Department said Thursday.

Economists polled by IFR expected 1.800 million claims in the week.
“While new jobless claims remain elevated for an eleventh straight week, we see the ninth consecutive decline after the peak of nearly 6.9 million in late March,” said Mark Hamrick senior economic analyst at Bankrate. “That’s the bright spot while the situation overall remains grim.”

The largest increases in initial claims for the week ending May 23 were in Maine (11,941), Oklahoma (10,274), Michigan (7,859), Kentucky (6,417), and Oregon (4,913), while the largest decreases were in Washington (90,683), Florida (49,993), California (41,169), New York (34,875), and Illinois (14,517).

“Continuing claims moved in the opposite direction of what we would want to see, rising to 21.5 million” in the week ended May 23, he said. “In many ways, the claims numbers provide the closest thing to real-time insight into the status of the badly damaged job market. No matter how you crunch the variety of statistics, the job market story is devastating and heartbreaking unlike anything we’ve seen in our lifetimes. That’s among a series of coinciding storms we’re currently experiencing.”

International trade
The international trade deficit grew to $49.4 billion in April from $42.3 billion in March, the U.S. Census Bureau announced on Thursday.

Economists expected a $44.3 billion shortfall.

Exports in April declined by $38.9 billion to $151.3 billion and imports were down $31.8 billion to $200.7 billion.

Productivity
Nonfarm productivity fell a revised 0.9% in the first quarter of 2020, compared to the originally reported drop of 2.5%. This follows an increase of 1.2% in the fourth quarter of 2019. Year-over-year productivity gained 0.7%, according to data released by the U.S. Bureau of Labor Statistics on Thursday.

Economists expected a drop-off of 2.5%.

Unit labor costs rose a revised 5.1% in Q1 2020, up from the originally reported 4.8% rise, following a 2.2% gain in the fourth quarter of last year.

Economists expected a 4.8% increase.

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Economic indicators Jobless claims Coronavirus
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